JPMorgan Chase Tops First Quarter Estimates

JPMorgan Chase & Co. (NYSE: JPM – $61.80) said its first-quarter profit fell 6.7% due in part to a weak performance within its investment banking and trading divisions. The largest U.S. bank by assets reported a profit of $5.52 billion, or $1.35 a share compared with a profit of $5.91 billion, or $1.45 a share in the same period of 2015. Analysts had expected earnings of $1.26 a share. The bank continues to remove costs from its operations, and was able to reduce expenses by 7% year-over-year. In addition, there were no material legal costs for the quarter, which also helped margins improve. Revenue fell 3% to $24.1 billion, but better than the consensus of $23.4 billion. Negative impacts on JPM centered on its commercial banking and investment banking segments, with net income declining 15% and 22%, respectively. These weaknesses were offset by strong results at the company’s consumer banking arm which showed a 12.5% advance over the prior year thanks in part to strong consumer loan growth. And the asset management business increased net revenue 17% from the first quarter of 2015. Chase, however, needed to set aside $1.82 billion in the first quarter to cover loan losses, nearly twice what it set aside in the first quarter of 2015. The increase in reserves was primarily driven by downgrades to loans in the bank’s oil, gas, metals and mining portfolios.

Separately, regulators ordered Chase and four other big U.S. banks to make significant revisions to their so-called living wills by Oct. 1 or face potential regulatory sanctions, a stern warning that will fuel criticism the firms are “too big to fail.” Like most bank stocks, JPMorgan shares have lost a lot of ground since late December. However, I believe eventual higher interest rates, the company’s business simplification efforts and its strong positions in consumer and investment banking will support much stronger earnings by late decade. The shares, up over 4% on the earning’s results, also provide patient investors with a respectable – and growing – dividend, yielding of 3%.